I. A COMMERCIAL BANK'S INCOME-EXPENSE STATEMENT

a. Provisions for loan loss reserves

b. Addition to retained earnings

c. Other items

II. FUNDAMENTALS OF BANK FINANCIAL MANAGEMENT

a. The Economic model of the Bank and market efficiency

b. Financing, Investment and Dividend Decisions in Banks

1. Economic Value added

2. Shareholders wealth goals and the agency problem

3. Conflicts of interest in banking institutions

4. The role of control mechanisms for conflict elimination

III. Bank Value

a. Determinants of value

b. Policies and objectives to achieve value (price) maximization

1. Spread management

2. "Burden" control

3. Liquidity management

4. Capital structure management

5. Financial management of Off-Balance sheet activities

c. Book value vs. market value

1. The irrelevancy of accounting values

2. Hidden bank values or hidden capital

d. Elements of sound financial bank management

1. Trust Net present value

2. Consider market efficiency and its implications

3. Accept portfolio theory approach

4. Determine values based on APT or CAPM

5. Develop an option pricing and contingent claims approach

6. Control conflicts (agency costs)

IV. BANKING THEORY/THEORIES FOR FINANCIAL INTERMEDIATION

a. The Consumption-Savings decision and the Role of Capital markets

b. The role of intermediation and the investment opportunity set

c. Incomplete transactions and other capital market imperfections

d. The Banking theory

1. Transaction viewpoint

2. Portfolio viewpoint

3. An unregulated banking system and theory implications

M&M considerations

Equal market access of banks and other agents

4. Modeling banking activities

e. Modern theory of Banks and intermediation

1. Unsatisfactory assumptions

2. The role of monitors in the financial system

3. The concept of "delegation"

4. The role of intermediary in monitoring performance

5. "Delegated monitoring" characterization of banks

ASSIGNMENTS: